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eMagin Corporation Announces First Quarter 2017 Financial Results

-- Update on Accelerating Partner Discussions --

HOPEWELL JUNCTION, N.Y.--(BUSINESS WIRE)--May 11, 2017-- eMagin Corporation, or the “Company” (NYSE MKT:EMAN), a leader in the development, design and manufacture of Active Matrix OLED microdisplays for high resolution imaging products, today announced financial results and corporate highlights for the first quarter ended March 31, 2017.

“Our overarching focus is to advance our projects with our strategic partners,” commented Andrew Sculley, President and Chief Executive Officer. “We have been in active discussions with high volume manufacturers to join us and our consumer electronics partners to fund and build the production capacity to handle the volumes required for the commercial market. Our objective is to align the display performance demands of these companies, which our products achieve, with a mass production partner who can execute at the volumes and cost levels required.

“The excitement around the technology that we have today is largely driven by our proprietary direct patterning, which we believe gives the highest brightness in the market. This is critical to our partners as it is the only way to avoid blurring and motion artifacts while achieving the speed and contrast required for the next generation of VR and AR headsets. We have been working on this for several years and have demonstrated over 5,000 nits in color, far beyond what we believe anyone else has today, and have in production monochrome displays with brightness levels exceeding 15,000 nits.

“Consumer electronics and technology companies who see VR/AR headsets as the next growth engine have been studying the performance and acceptance of first generation headsets and have strong ideas about what performance characteristics are critical for next generation products. Across the board, these companies are telling us that our high brightness technology represents the best path forward for meeting end user requirements.

“While our military business was down from last year due to the wind down of certain domestic military programs, our product revenue was up 20 percent from the fourth quarter as we begin to ramp up volumes for the new multiyear programs. We have strong, longstanding relationships with our customers and, as the only company that manufactures AMOLED displays in the U.S., are well-positioned to expand our presence and get more than our fair share of their business,” continued Mr. Sculley.

Business and Product Highlights

The Company continued to expand its presence in commercial, industrial and foreign military markets while winning new U.S. military programs. Additionally, the Company made improvements in technology and product design. Some of the highlights include:

  • Signed a multi-million-dollar agreement with another major consumer electronics company to design and develop a microdisplay for a VR headset.
  • Completed a prototype of a full color 2Kx2K device with advanced backplane and direct patterning. This high-performance display has many built in features due to the new backplane. Initial tests showed more than 5,000 nits in brightness which we believe would make this the world’s highest resolution, highest brightness OLED microdisplay.
  • Selected as a sole source provider of OLED microdisplays for a major US Army helicopter helmet upgrade program to retrofit high brightness, monochrome green microdisplays into the current fielded helmet. Program includes funding for production tooling for a higher-level display, taper, and lens assembly.
  • Completed requirements review with a major aviation prime contractor for an OLED upgrade to a fixed wing production helmet.
  • Continued our negotiations on a new thermal weapon sight program with a major European customer.

First Quarter Results

Revenues for the first quarter of 2017 were $6.1 million as compared to $7.0 million in the first quarter of 2016. Last year’s quarter included $1.0 million in revenue from a licensing agreement for our HMD technology with a major electronics company.

Product revenues totaled $4.4 million versus $5.3 million in the first quarter last year and $3.7 million in the fourth quarter of 2016. R&D contract revenues totaled approximately $1.7 versus $706 thousand reported in the prior year quarter and $905 thousand reported last quarter. The increase in R&D contract revenue over the prior year is primarily due to the addition of a commercial contract with a major consumer electronics company.

Overall gross margin for the fourth quarter was 30% on gross profit of $1.8 million compared to a gross margin of 48% on gross profit of $3.3M in the first quarter of 2016. The decline in gross profit margin was attributable to the favorable impact of $1.0 million in license revenue recorded in the first quarter of 2016, against which no cost of revenues was recorded, and the impact of lower production volumes on our fixed production costs.

Operating expenses for the first quarter of 2017, including R&D expenses, increased to $3.8 million, from $3.3 million in the first quarter of 2016. First quarter operating expenses reflect higher R&D spending as we dedicated our production resources to our direct patterned display development and to achieving higher production volumes of these displays. SG&A expenses increased due to higher spending on professional services associated with negotiating and structuring agreements with prospective partners as well as higher stock based compensation costs and travel, marketing and promotional expenses for our night vision consumer products.

Operating loss for the first quarter was $2.0 million versus operating income of $22 thousand in the first quarter of last year. Net loss for the first quarter of 2017 increased to $2.0 million, or $0.06 per diluted share, compared to net income of $11 thousand, or $0.00 per diluted share, in the first quarter of 2016.

Cash and cash equivalents were $3.8 million at the end of the first quarter. There were outstanding borrowings of $1.4 million, net of issuance costs, and $2.3 million of additional borrowing availability under our working capital facility. There were no borrowings under our $5 million unsecured credit facility.

Outlook

“We continue to pursue our milestone approach to driving shareholder value. We believe eMagin is the only Company whose products can meet the low power, high brightness and resolution requirements for high-pixel density displays being demanded both for next generation VR/AR Consumer HMDs as well as today’s commercial and military applications,” continued Mr. Sculley.

The Company remains focused on the following objectives to drive shareholder value:

  • Advance our product development discussions with major consumer electronics companies to incorporate OLED technology into their next generation products,
  • Advance discussions with high volume production partners to utilize our leading production and process technologies,
  • Further penetrate high growth commercial/industrial markets including medical devices and other vertical markets where integration of our OLED microdisplays and optics technology advances product development and adoption,
  • Expand our presence in existing and future major military programs and overall customer count in domestic and international military markets,
  • Launch new products focused on the consumer market which offer high performance and broad appeal at an attractive price, and
  • Continue our progress in manufacturing improvements including yield enhancement and production capacity expansion.

“The interest in our technology, especially with the enhancements that direct patterning provide, continues to grow among both our partners and other potential partners whether for manufacturing or consumer applications. We are making significant progress in all areas of the business from engineering and production to sales and strategic partnerships. We have a very talented group of people working at an exceptional level to make this a transformative year for eMagin,” concluded Mr. Sculley.

Conference Call Information

A conference call and live webcast will begin today at 9:00 am ET. An archive of the webcast will be available one hour after the live call through June 11, 2017. To access the live webcast or archive, please visit the Company’s website at ir.emagin.com or www.earnings.com.

About eMagin Corporation

A leader in OLED microdisplay technology, OLED microdisplay manufacturing know-how and mobile display systems, eMagin manufactures high-resolution OLED microdisplays and integrates them with magnifying optics to deliver virtual images comparable to large-screen computer and television displays in portable, low-power, lightweight personal displays. eMagin’s microdisplays provide near-eye imagery in a variety of products from military, industrial, medical and consumer OEMs. More information about eMagin is available at www.emagin.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including those regarding eMagin Corporation’s expectations, intentions, strategies and beliefs pertaining to future events or future financial performance. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Company’s most recent filings with the SEC. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in forward-looking statements. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements.

Non-GAAP Financial Measures

To supplement the Company’s consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization, and non-cash compensation expense (“Adjusted EBITDA”). The Company’s management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company’s historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financial statements. Management believes that these adjusted measures reflect the essential operating activities of the Company. A reconciliation of non-GAAP financial information appears below.

 

 eMAGIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

 
     

March 31,
2017

   

December 31,
2016

(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,750 $ 5,241
Accounts receivable, net 3,118 2,834
Unbilled accounts receivable 1,131 1,401
Inventories 7,964 7,435
Prepaid expenses and other current assets   1,275   1,040
Total current assets 17,238 17,951
Equipment, furniture and leasehold improvements, net 9,189 8,980
Intangibles and other assets   426   282
Total assets $ 26,853 $ 27,213
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 2,484 $ 1,432
Accrued compensation 1,213 1,528
Revolving credit facility, net 1,450 1,689
Other accrued expenses 2,364 1,513
Other current liabilities   629   591
Total current liabilities   8,140   6,753
 
Commitments and contingencies (Note 8)
 
Shareholders’ equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares:
Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of March 31, 2017 and December 31, 2016
Common stock, $.001 par value: authorized 200,000,000 shares, issued 31,814,655 shares as of March 31, 2017 and 31,788,582 shares as of December 31, 2016 32 32
Additional paid-in capital 240,167 239,915
Accumulated deficit (220,986) (218,987)
Treasury stock, 162,066 shares as of March 31, 2017 and December 31, 2016   (500)   (500)
Total shareholders’ equity   18,713   20,460
Total liabilities and shareholders’ equity $ 26,853 $ 27,213
 
eMAGIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(unaudited)
         
Three Months Ended
March 31,
2017 2016
Revenues:
 
Product $ 4,381 $ 5,295
Contract 1,688 706
License     1,000
Total revenues, net   6,069   7,001
 
Cost of revenues:
 
Product 3,458 3,287
Contract 793 379
License    
Total cost of revenues   4,251   3,666
 
Gross profit   1,818   3,335
 
Operating expenses:
 
Research and development 1,334 1,303
Selling, general and administrative   2,463   2,010
Total operating expenses   3,797   3,313
 
(Loss) Income from operations (1,979) 22
 
Other income (expense):
Interest expense, net (35) (10)
Other income, net   15   2
Total other expense, net   (20)   (8)
Loss (Income) before provision for income taxes (1,999) 14
Provision for income taxes    
 
Net (loss) income $ (1,999) $ 14
Less net income allocated to participating securities     3
Net (loss) income allocated to common shares $ (1,999) $ 11
 
Loss per share, basic $ (0.06) $
Loss per share, diluted $ (0.06) $
 
Weighted average number of shares outstanding:
 
Basic   31,628,997   29,388,104
 
Diluted   31,628,997   29,637,804
 
       

Non-GAAP Information

 
Three Months Ended
March 31,
2017 2016
 
Net (loss) income

$

(1,999)

$

14
Non-cash compensation 214 167
Depreciation and intangibles amortization expense 486 415
Interest expense 35 10
Provision for income taxes - -

Adjusted EBITDA

$

(1,264)

$

606
 

Source: eMagin Corporation

eMagin Corporation
Jeffrey Lucas, 845-838-7931
Chief Financial Officer
jlucas@emagin.com
or
MBS Value Partners
Betsy Brod, 212-661-2231
Betsy.brod@mbsvalue.com